The Money Supply and you - meltdown or meltup?

[Mayday]

SNIP

Great post!

Ok, so we have seen booms happen out of recessions and now with an eye watering amount of QE, an outcome of high inflation will inevitably hit assets.

So should we look to commodities for inflationary sign of when things are truly being increased by monetary devaluation? Use that as a leading indicator that the property market will follow in a short period?

[Primemuscle]

If the dollar is being devalued, why would you "stack cash"?

Of course you should have a fair amount of liquidity for emergencies.

Look for paper money and coins to become a thing of the past. Many of the retailers around here are refusing cash. It's card only. Tap it on the reader and your done. nobody touches anything.

Pay your monthly bills using automatic withdrawal and not a check contaminated with germs. About the only thing still requiring cash are lottery machines and I think the new ones here in Oregon let you use your debit card.

[epic is back]

Sure you can.  It's called a thumb drive.

Which is dependent on what ?

Ding ding

We have another winner here !!

[Primemuscle]

As an accountant, I'll gladly tackle this.

You pose a great question and have a very good point on hand. Why hold on to money if it will become useless in terms of its value?

The simplest answer is that in times of harsh inflation, there are some good ways to hedge against inflation. Having real estate on hand is one great hedge against inflation (as property values go up & so do rents during times on inflation) AND one of the other great hedges against inflation is having active DEBT. Look at it this way, if you owe $50K in debt today and tomorrow the inflation rate more than doubles, a few things will occur as a result on the increase to inflation rate. First, your debt (the dollar amount of it) will not change as a result of the inflation. Second, what will change is that your job/workplace will likely give you a salary/wage increase due to the rising cost of living by way of inflation. As a result of this, you will then be capable of paying that debt off in half the time. Using this principle, you can see one solid reason why holding onto cash is not a bad idea due to the ability you will then have to eradicate your private debt in the setting of rising inflation.

There are other ways to hedge against inflation. The various crypto currencies offer vehicles for hedging, but I will differ on commenting regarding those, as I honestly don't see evidence of inherent value to those types of currencies. I know many here will disagree, but I am an old school guy and like my assets to be real vs digital.

The once young and daring financial cowboy in me would think differently. If I were in my 30's today, my suggestion to those that are day traders or are tempted to dabble with Bitcoin would be to consider shorting bitcoin through a cryptocurrency margin trading platform. In other words, gamble with crypto's value on borrowed money and simply reap the rewards after taxes.

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For the average person, having debt for big ticket items, such as real estate and automobiles makes sense, particularly when interest rates are low. Revolving account debt does not, IMO. The interest rate on these is comparatively exorbitant. There is one other way to stay a little ahead of the game. When I recently purchased a new high-end Ricar vacuum cleaner for around $1,100 after all the discounts, I financed it for 6 months at 0% interest with Synchrony Bank. The deal is that if you pay late or miss a payment, you'll be charged a stupid high interest rate retroactively. Simple foolproof solution is have the payments auto deducted a few days ahead of the due date and you just beat them at their own game.

When I bought my car in 2016, I could have paid cash, which I offered to do if they gave me a huge discount and which wasn't going to happen because I'd already bargained it down to a rock bottom price. So instead, I financed it for 60 months at 1.6% interest which amounts to a few dollars a month.

Having the highest possible credit rating saves you a ton of money. And it is so easy to do. But, it requires you to have a variety of debt.

With the exception of groceries, I pay for everything using one of three credit cards that all have either cash rewards or offer points which you can spend like cash. It delays paying for stuff for about a month, which doesn't mean much considering how much you earn in interest on a savings account unless it is a high yield account because you keep a sizable balance in it. What it does do, is keep your credit rating top drawer.

[epic is back]

Honda

Kia

Hyandai

Or daewoo

What car did you finance

[OneMoreRep]

Ok, so we have seen booms happen out of recessions and now with an eye watering amount of QE, an outcome of high inflation will inevitably hit assets.

Piggybacking off my original post, I'll reiterate that with continuous QE + resulting increases in inflation, the price of assets will rise. Like I said before, when inflation rises, the value of the dollar decreases. As a result of this, assets (like real estate) will benefit from an increase to their prices. If the value of the dollar goes down, then the price of real estate must inversely go up, because you can't use the same monetary amount you used yesterday to buy the same real estate asset (in this two-sided equation, only one item lost value and it was the dollar). Now, in the case of VERY high inflation, the prices of assets (like real estate) will also go down, because many will unload their assets onto the market in order to liquidate and have more cash on hand for doomsday scenarios, but the likelihood of this is uncertain.

So should we look to commodities for inflationary sign of when things are truly being increased by monetary devaluation? Use that as a leading indicator that the property market will follow in a short period?

Well, we both know that commodities prices tend to rise when inflation is increasing. While we can keep an eye out for increasing commodity prices and even purchase commodities as a hedge against inflation, whether YOU think this is the best idea is a subjective argument.

In many respects, I tend to be a doom-and-gloomer when it comes to the future of our economy. While bullish financial cowboys will always find a way to find opportunity in a market that's now solely driven by fear and speculation, I instead apply technical analysis and realize that these patterns we are seeing today have occurred in similar fashion before. Plus, remember, as an accountant I side with exuberant levels of caution. As a result, I don't trade in the market, I merely invest in it (I'm an index fund guy, who also enjoys corp + gov bonds and hedges against inflation with real estate assets). The only debt I have is the debt I leverage to buy more real estate assets.

More important than my ultra cautious approach is what young men like yourself and others here think in terms of the future of our economy given what we are seeing right now. A odds maker would bet against the USA given what we are seeing, but what do you make of it all?

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[IroNat]

China has over-whelming debt also.

A crash is definitely on the way.  As to when it could happen...soon or in a few years, no one knows.  It will happen.

The stock market is cyclical so a crash is always on the way.  Expect it.  Prepare for it. 

Should you sell all your stock?  No. 

Should you have bonds, cash, perhaps some real estate?  Yes.

Keep dry powder on hand.

Real estate also experiences boom and bust.  Fortunes were made in the late 70s and early 80's in real estate when inflation was high.

Real estate is location dependent.  Not all real estate markets appreciate.

[OneMoreRep]

China has over-whelming debt also.

I don't completely agree with this statement, as the numbers would suggest different. China's debt-to-GDP ratio is 61.7% (https://www.statista.com/statistics/270329/national-debt-of-china-in-relation-to-gross-domestic-product-gdp/). That's a very healthy ratio of debt vs what their gross domestic product is. The USA's debt to GDP ration is 136%, hence we owe more than we produce (https://www.thebalance.com/national-debt-by-year-compared-to-gdp-and-major-events-3306287).

Granted, the counter-argument to this is that China has historically been the biggest cheaters of all time with many economic tricks employed to over-value their currency, boost up their GDP and garner advantages via trade by way of their exports.

A crash is definitely on the way.  As to when it could happen soon or in a few years.

The stock market is cyclical so a crash is always on the way.  Expect it.  Prepare for it.

I agree with this 100%. Crashes have occurred in 1929, 1987, 2000, 2008 & 2020. I think we are in line for another crash, likely soon within the next year or two.

Real estate also experiences boom and bust.  Fortunes were made in the late 70s and early 80's in real estate when inflation was high.

Agree again! The ultra wealthy and those with enough reserves on hand + very little debt WILL reap the benefits following the real estate bust. They will sweep up the overwhelming, low-priced supply of real estate once real estate goes BUST.

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[Marty Champions]

Ive only seen real estate go bust in .01 percent of total market and thats detroit

I don't completely agree with this statement, as the numbers would suggest different. China's debt-to-GDP ratio is 61.7% (https://www.statista.com/statistics/270329/national-debt-of-china-in-relation-to-gross-domestic-product-gdp/). That's a very healthy ratio of debt vs what their gross domestic product is. The USA's debt to GDP ration is 136%, hence we owe more than we produce (https://www.thebalance.com/national-debt-by-year-compared-to-gdp-and-major-events-3306287).

Granted, the counter-argument to this is that China has historically been the biggest cheaters of all time with many economic tricks employed to over-value their currency, boost up their GDP and garner advantages via trade by way of their exports.

I agree with this 100%. Crashes have occurred in 1929, 1987, 2000, 2008 & 2020. I think we are in line for another crash, likely soon within the next year or two.

Agree again! The ultra wealthy and those with enough reserves on hand + very little debt WILL reap the benefits following the real estate bust. They will sweep up the overwhelming, low-priced supply of real estate once real estate goes BUST.

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[OneMoreRep]

Ive only seen real estate go bust in .01 percent of total market and thats detroit

Hmm, do you not recall the effects of the 2008 recession when the housing market fell 33 percent?

https://www.washingtonpost.com/news/business/wp/2018/10/04/feature/10-years-later-how-the-housing-market-has-changed-since-the-crash/

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[epic is back]

Washington post

Lol

Truth !!!

Facts !!!

[Marty Champions]

Hmm, do you not recall the effects of the 2008 recession when the housing market fell 33 percent?

https://www.washingtonpost.com/news/business/wp/2018/10/04/feature/10-years-later-how-the-housing-market-has-changed-since-the-crash/

"1"

I disagree. No one can say in good faith it fell 33 percent , rent prices have been on a steady incline since 2000 since 1990,1980 ect to 2020. The numbers game you follow from your pc is B.S bro. House prices will remain robust. There was never a rent drop in 2008 nor did housing crash people got what they asked for people got what they paid for. The media hated bush in that era just bad publicity fear mongering
A psuedo crash was to give the economy a push start there were more vacant homes in that era due to people who couldnt afford but never a crash. They are trying to slow growth with covid because economy is doing well and more efficient

[OneMoreRep]

Washington post

Lol

Truth !!!

Facts !!!

Would the following sources suit you better?

https://www.marketwatch.com/story/are-you-waiting-for-house-prices-to-drop-during-the-next-recession-heres-why-you-could-have-a-very-a-long-wait-2020-02-07

https://www.investopedia.com/articles/economics/09/subprime-market-2008.asp

https://money.cnn.com/2008/12/15/real_estate/underwater_borrowers_near_12million/index.htm

https://www.corelogic.com/downloadable-docs/corelogic-peak-totrough-final-030118.pdf

https://www.forbes.com/sites/kirandhillon/2014/08/01/heres-a-look-at-the-housing-market-eight-years-after-the-collapse-3/?sh=564b33e15385

All of those sources above show that housing prices fell upwards of 29% and beyond. If you have more reliable sources, by all means share, as I don't believe that I can't be wrong and I'm always open to new facts.

Short of online sources, the proof is in the pudding for those of us (myself included) who swept up 2 homes in Fort Lauderdale following the 2008 housing crisis. When those subprime loans went bust due to ARM mortgage rates, I swooped on in and purchased 2 bank foreclosed homes for close to 40% off. It was a very real phenomenon and could likely occur again.

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[Marty Champions]

Its funny how the media can twist your mind into thinking that situation is bad, you attained 2 properties at a steal. While some likely bums got kicked out.

Would the following sources suit you better?

https://www.marketwatch.com/story/are-you-waiting-for-house-prices-to-drop-during-the-next-recession-heres-why-you-could-have-a-very-a-long-wait-2020-02-07



Short of online sources, the proof is in the pudding for those of us (myself included) who swept up 2 homes in Fort Lauderdale following the 2008 housing crisis. When those subprime loans went bust due to ARM mortgage rates, I swooped on in and purchased 2 bank foreclosed homes for close to 40% off. It was a very real phenomenon and could likely occur again.

"1"

[OneMoreRep]

Its funny how the media can twist your mind into thinking that situation is bad, you attained 2 properties at a steal. While some likely bums got kicked out.

Azizam,

It's not about the media. This is the world I live and work in. Many of my former clients had homes throughout the Southern States (Florida obviously included). When I had to do their taxes and show their losses, many of my clients had gone under and had to part ways with their homes for pennies. Florida just so happened to have many of these homes that went belly up, as it's a warm state with walking proximity to water and no income tax. It's a great spot.

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[Marty Champions]

banks would rather every citizen be a property manager or landlord. Because they upkeep value of homes and cities while banks can relax and have a good day onemorerep. There is never a crash , only a shift of workload to the next owner

[OneMoreRep]

banks would rather every citizen be a property manager or landlord. Because they upkeep value of homes and cities while banks can relax and have a good day onemorerep. There is never a crash , only a shift of workload to the next owner

I know this.

Homes w/ mortgages are revenue generating vehicles for banks. It's one of the best products banks can use as an intermediate for exchange between a bank & client. The bank wants to drown you in debt via a large loan, but it needs a carrot at the end of that stick to suck that client in. Put a home in the middle and there goes your carrot. Ultimately, the bank tends to own more of that property than the client and in turn the client keeps a fractional share of equity.

Ultimately, it's a win/win for banks. If your client goes bad on the loan, they keep the initial down payment, all the principal and interest payments made by the clients and the actual physical property (home) itself. The bank can then resell it in the market and still make a great profit. The game is very old. I know, because part of my portfolio is with cash flowing properties that I collect tax-free rents on due to depreciation. It's a great business for those wanting a solid investment, but it isn't easy to undertake without some level of training and a solid team (realtor, reasonable bank, property manager, real estate lawyers, contractors etc).

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[Kwon]

Azizam,

It's not about the media. This is the world I live and work in. Many of my former clients had homes throughout the Southern States (Florida obviously included). When I had to do their taxes and show their losses, many of my clients had gone under and had to part ways with their homes for pennies. Florida just so happened to have many of these homes that went belly up, as it's a warm state with walking proximity to water and no income tax. It's a great spot.

"1"

Do we adress Marty with Azizam these days?

[OneMoreRep]

Do we adress Marty with Azizam these days?

It's just a term of endearment 

"1"

[DooM_]

I disagree. No one can say in good faith it fell 33 percent , rent prices have been on a steady incline since 2000 since 1990,1980 ect to 2020. The numbers game you follow from your pc is B.S bro. House prices will remain robust. There was never a rent drop in 2008 nor did housing crash people got what they asked for people got what they paid for. The media hated bush in that era just bad publicity fear mongering
A psuedo crash was to give the economy a push start there were more vacant homes in that era due to people who couldnt afford but never a crash. They are trying to slow growth with covid because economy is doing well and more efficient

a new poster for the '' marty champions '' account . . . ! !

[Humble Narcissist]

https://nationalinterest.org/blog/politics/us-economy-teetering-precipice-depression-175321

[Voice of Doom]

this

[Primemuscle]

I disagree. No one can say in good faith it fell 33 percent , rent prices have been on a steady incline since 2000 since 1990,1980 ect to 2020. The numbers game you follow from your pc is B.S bro. House prices will remain robust. There was never a rent drop in 2008 nor did housing crash people got what they asked for people got what they paid for. The media hated bush in that era just bad publicity fear mongering
A psuedo crash was to give the economy a push start there were more vacant homes in that era due to people who couldnt afford but never a crash. They are trying to slow growth with covid because economy is doing well and more efficient

Reductions and gains in Real Estate, whether in sale prices or rents can be the result of a variety of issues. I don't know what the market is like where you live, but here in Oregon, mainly in the large cities there is a huge shortage of housing, particularly rental units. This shortage will continue as long as the population continues to grow rapidly, regardless of that happens with the economy.

In my neighborhood, the rare house that goes on the market often sells the same day or within a couple of days of it being listed. Bidding wars are common. Some houses sell for more than asking price. Believe it or not people are buying properties (houses) that sell in the millions of dollars and they are paying cash. It was reported recently in the Oregonian that two properties sold for more than $2,000,000 and the buyers paid cash.

Here are some facts and figures about the average cost of living to keep in mind before moving to PDX. Rent: the average cost to rent a 1-bedroom apartment is $1,430 and $1,770 for a 2-bedroom.

[Kwon]

It's just a term of endearment 

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Ah , is it Persian?

[OneMoreRep]

Ah , is it Persian?

Yes

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